Very Simple Financial Management System

By Dan Nolan

Personal financial budging can be a drag because of the amount of detail some systems require. I’ve found a system that works well for me becasue it is super simple to track and understand. It makes your budget something actionable and understandable; you can make decisions by tracking one single number: your Daily Spend Value.

Daily Spend Value method:

How much did you spend at the restaurant last night? Was it a restaurant or a bar? You only had an appetizer; does that count as a meal or a snack? You were with friends watching the game; is this dinning or entertainment? Let’s not track any of this and only track one number: How much money did you spend today, and was that more than your budget allows?

By understanding how much your budget allows you to spend in day, you are able to easily track it. If you knew your budget only allows you to spend $15 a day total, would you pack a sandwich or go out for lunch? The daily budget gives us a framework to make actionable decisions, where as a broader system (a monthly budget system) we lose that ability because it is a timeline we simply can’t envision.

Find your Daily Spend Value:

First add up all the bills you MUST pay, such as your rent, car insurance, loan repayments, and utilities (estimated value). Don’t count these as MUSTs: Food, groceries, clothes, dry cleaning, gas. Why not? Because then you lose the understand of the value of your choices later on (more on that later).

Rent: $600

Car payment and insurance: $325

Student loans: $525

Est cell phone: $65

Est utilities: $75

Total MUSTs: $1,590

Next, take your monthly take home income and minus the MUSTs from above to get your spend maximum.

Monthly take home income: $2,500

Total of MUSTs above: $1,590

Max Spendable: (2500 – 1590) = $940

Lastly, divide the Max spendable by 31. Even though there might not be 31 days in the month you’re in, its near the average days in a month for a year. Tweak this as you feel you need, but make sure it lines up with your income as well.

$940/31 = $29.35 daily spend value

Daily tracking – One number

Only track one number now on your spread sheet: How much did you spend that day? Yes or no, was it less than your daily spend value? Does it really matter how you spent that money? No, not really. Either way it’s spent and no longer available to you.

Using a simple Google Docs spread sheet, I figure one additional number: My running total. To get this I set up a formula to subtract my daily spend amount from my daily spend value. Then, I just total up that entire column. This let’s me know if, for the month, I’m ahead or behind my budget. This is a good thing to know because some days you will blow your daily spend value out of the water (like, when you fill up on gas) and how a larger purchase will affect your overall monthly standing. Other days you don’t spend a dime, and your running total shows a savings.

What freedoms does this allow you?

This might sound lame, but I feel this simple daily tracking gives you the freedom to make choices in your spending. For example, you have to eat, but do you have to eat at a restaurant or could you go to the grocery store? At the grocery store, do you gave to buy the nice ham, or can you get by with the generic? If you really like the nice ham…BUY IT, but what does that mean you give up to stay under your daily average and keep your running total out of the red? I find that if you just decide you’re going to spend X amount a month on a line item like “Entertainment”, you give up that crucial moment of choice of asking ‘is this of value to me, now, or am I just spending the money I budgeted?’

So why is ‘Gas’ not a MUST?

Simply: Because you could have taken the bus, or walked. Keeping Gas as a daily choice really is the best example of the power you have to decide how to spend your money. If you started to carpool, you would spend less in gas. Also, it is a lot easier to track if you don’t call it a MUST, because how do you account for the gas it takes for a scenic weekend drive? And regardless, you still spent the money. Keep the tracking simple and just call it a daily choice…because it really is.

I hope this helps someone. I’ve had good luck with it and it’s allowed me to think about my spending and gain control over it. It’s not a perfect model, but I think it is more then enough for most of us. Once you feel that you’re ready to start tracking each and every penny, then you’re probably ready for a more robust system like Mint.com. Until then, be simple and be actionable.

*All numbers for example purposes only; I wish my students loans were that low :(